The European Banking Authority (EBA) today published its annual assessment of EU colleges of supervisors, the forum within which joint decisions on capital and liquidity and recovery plans are organised for EU cross border banking groups. The report assesses how colleges have functioned during 2015 and identifies key activities for the effective oversight of EU cross border banking groups in 2016. In addition, it draws the attention of supervisors to some specific items for 2016, including non-performing loans (NPLs) and balance sheet cleaning, business model sustainability, conduct risk and IT risk.
The requirements of the 2015 EBA Colleges Action Plan, aiming to improve functioning of supervisory colleges across the EU, have been fulfilled to a reasonable extent.
Overall the quality of group risk assessments, one of the key outcomes of colleges work, has further improved. Significant effort was observed in the frequency and quality of college meetings. However, the EBA also highlighted substantial drawbacks, namely in relation to some aspects of the joint decision processes, the quality of joint decision documents, and requests for individual recovery plans outside the joint decision process.
Appropriate reasoning and articulation of capital requirements stressed in previous years' assessments still remained a challenge in 2015. In particular, areas where improvements are needed is the granularity of capital requirements by risk type as well as the lack of consistent articulation of additional capital requirements in joint decisions.
The formal joint decision process on the assessment of group recovery plans has been initiated for the vast majority of the monitored colleges. A substantial challenge faced by a number of supervisory colleges was the treatment of pre-existing individual recovery plans, or of requests from host authorities for individual plans for subsidiaries of cross-border banking groups, which were made outside the joint decision process established in the Bank Recovery and Resolution Directive (BRRD).
The report also sets specific items for supervisory attention in 2016 and identifies the need for supervisors to focus on ongoing balance sheet cleaning and NPLs reduction for legacy portfolios and to pay particular attention to the sustainability of banks' business models.
Notes to the editors
Colleges bring together banking supervisors, from EU as well as non-EU areas, to jointly supervise those institutions that operate in more than one EU Member State. They have a key role in ensuring effective cooperation and in enhancing the oversight of cross-border banking groups.
As part of its mandate to improve supervisory cooperation and convergence of supervisory practices, the EBA produces regular internal reviews on the functioning of colleges. These reviews are discussed with all 28 CAs across the EU so that best practices, areas for improvements and priority tasks going forward can be identified. Colleges of supervisors are fundamental for the effective supervision of cross-border banking groups across the EU; they act as the coordination hub for supervisory activities, as well as the forum for the development of group risk assessments and the reach of joint decisions on institutions' capital and liquidity requirements under Pillar 2 as well as on the assessment of institutions' group recovery plans.